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Effective Decisions

Making a decision is comparable to giving a verdict. It is a choice between different alternatives. It is seldom a choice between wrong and right. It is mostly a choice between ‘almost right’ and ‘perhaps wrong’. It is very often a choice between two courses of action neither of which can be considered more correct than the other.

Most of the literature on decision making advises that the decision maker is to find the facts first. But it is also a point that management executives who make effective decisions are aware that one does not start with facts. Instead, they start with opinions. These opinions are, naturally, nothing but untested suppositions and, hence, worthless unless tested against reality. To determine what is a fact, requires first a decision on the criteria of relevance, especially on the suitable measurement. This is the core of the effective decision, and usually it is the most controversial aspect.

Further, most of the literature on decision making states that the effective decisions flow from a consensus on the facts. To the contrary, the understanding which underlies the right decision grows out of the clash and conflict of divergent opinions and out of the serious consideration of competing alternatives. To obtain the facts first is impossible. There are no facts unless one has a norm of relevance. Events by themselves are not facts. As an example, the taste or colour of a substance is not a fact in physics, while in cooking the taste is a fact of highest importance, and in painting, the colour matters the most. Physics, cooking, and painting consider different things as relevant and therefore consider different things to be facts.

Executive, who is making effective decisions, also knows that people do not start with the search for facts. They start with an opinion and there is nothing wrong with this. People experienced in an area are expected to have an opinion. People not having an opinion after having a long exposure in an area only indicate that they have an unobservant eye and a sluggish mind. People inevitably start out with an opinion and to ask them to search for the facts first is even undesirable, since they start looking for the facts which are fitting to the conclusion they have already reached. And no one has ever failed to find the facts he is looking for.

The only rigorous method, which enables the persons to test an opinion against reality, is based on the clear recognition that opinions come first. Hence, it can be seen that people start with untested hypotheses in decision-making, as in science, the only starting point. They are aware what to do with hypotheses and hence they do not argue them but they test them. They find out which hypotheses are rational, and thus worthy of serious consideration, and which are to be eliminated by the first test against observable experience.

The effective executives encourage opinions. But they insist that the people who voice them also think through what it is that the testing of the opinion against reality (known as ‘experiment’ in science) is to show. Hence, the effective executive asks what he is required to know to test the validity of this hypothesis and which facts are needed to make this opinion acceptable. He makes it a habit both in himself and in the people he works with to think through and spell out what needs are to be looked at, studied, and tested. He ensures that people voicing an opinion also take responsibility for defining what factual findings can be expected and are to be looked for. He also ensures that the people look for the crucial criterion of relevance. This more often turns into the measurement suitable for the matter under discussion and for the decision to be reached. Whenever an executive analyzes how a truly effective and a truly right decision has been reached, he always finds that a great deal of work and thought has gone into finding the appropriate measurement.

The effective decision-maker assumes that the traditional measurement is not the right measurement. Else, there is no necessity for a decision and a simple adjustment is needed. The traditional measurements reflect decisions which were made earlier and hence they are no longer relevant in meeting today’s requirements and hence there is need for a new measurement.

Let this be explained by an example. The procurement and inventory policies of an organization were in bad shape and it had been known since a long time. A large number of studies had been conducted but the things had become worse instead of improving. Then there was change in the chief executive of the organization due to the retirement of the previous chief executive. The newly appointed chief executive challenged the traditional measurements of inventory which were in total money value and in total number of items both in procurement and in inventory. Instead, the chief executive got the criterion changed. Now the organization was to identify and separate the items, maybe 5 % of the items by number, which together account for 90 % or more of the total procurement value. Similarly the organization was to identify the items, may be again 5 % which account for 90 % readiness of the organization for its continuous operation. Since some items belong to both of the categories, the list of crucial items came to 6 % or 7 % of the total, whether measured by number or by their value. Each of these items, the new chief executive insisted, had to be managed separately and with attention to minute detail. The rest were the 93 % or 94 % of all items which account neither for the bulk of the value dollars nor essential for the organizational readiness for its continuous operation. For these items, he changed the system to ‘management by exception’ also known as ‘management by probability and averages’. The new measurement immediately made possible highly effective decisions with regards to procurement and inventory-keeping and with regards to logistics.

The best way to find the suitable measurement is again to check the appropriateness of the present measurement through the feedbacks and to be sure that these are the only feedbacks necessary before making the decision.

In most personnel matters, for example, events are measured in ‘averages’, such as the average number of lost-time accidents per hundred employees, the average percentage of absenteeism in the whole work force, or the average illness rate per hundred. But the executives who go out and look for themselves soon find that they need a different measurement. The averages serve the purposes of the insurance company or for the regulatory authorities, but they are meaningless, indeed misleading, for personnel management decisions.

It is a fact that the great majority of all accidents occur in one or two places in the plant. The great bulk of absenteeism is taking place in one or two departments. Even illness resulting in absence from work, may not be distributed as an average, but is concentrated in a very small part of the work force. Hence, the personnel actions which are dependent on the averages, are not going to produce the desired results, instead it may indeed make things worse.

Finding the appropriate measurement is thus not a mathematical exercise. It is a risk-taking judgment. Whenever the executives are to judge, they need to have alternatives among which they can choose. A judgment in which one can only say ‘yes’ or ‘no’ is no judgment at all. Only if there are alternatives can one hope to get insight into what is truly at stake. Effective executives therefore insist on alternatives of measurement, so that they can choose the one which is the most suitable while making the decision.

Executive while making decision is to ensure that he has considered all the alternatives to eliminate the possibility of a closed mind. An example for this is the proposal for a capital investment. A number of measurements are available for the proposal. One of these emphasizes on the length of time it will take before the original investment has been earned back while the other one focuses on the rate of profitability expected from the investment. A third one stresses on the present value of the returns expected to result from the investment, and so on. The effective executive is not content with any one of these conventional yardsticks, no matter how strongly it has been presented to him. Though all these have scientific basis, the effective executive knows from experience, that each of these analyses brings out a different aspect of the same capital investment decision. Until he has looked at each possible dimension of the decision, he cannot really know which of these ways of analyzing and measuring is suitable to the specific capital decision before him. Though it may be annoying still the effective executive insists on having the same investment decision calculated in all the three ways so as to know which of these is correct for making the decision. Consideration of all the alternatives is necessary to exclude the possibility of a closed mind.

This, above all, explains why an effective decision maker intentionally disregards the second major guideline in literature on decision making and creates dissension and disagreement, rather than consensus. Decisions of the kind which the executive are to make are not made well by acclamation. They are made correctly when they are based on the clash of conflicting views, on the discussion between different points of view, and by making the choice between different verdicts. Hence, the first rule for the decision making is not to make a decision unless there is disagreement.

The effective executive is to be an ‘intuitive’ decision maker. He is to always emphasize the need to test opinions against facts and the need to make absolutely sure that he does not start out with the conclusion and then looks for the facts to support it. He also knows that the right decision demands adequate disagreement. The executive can have his own method of producing the disagreement he needed in order to make an effective decision.

The main task of an executive is not administration, but it is the making of policy and the making of the right decisions. Effective executive is aware that the right decisions are made best on the basis of ‘adversary proceedings’ (a term used by the lawyers for their method of getting at the true facts in a dispute), and of making sure that all relevant aspects of a case are available.

There are three main reasons for the insistence on disagreement (Fig 1). These are (i) to safeguard against becoming the prisoner of the system, (ii) a disagreement alone can provide alternatives to a decision, and (iii) to stimulate the imagination.

Fig 1 Main reasons for the insistence of disagreement

The first reason is to safeguard against becoming the prisoner of the system. Every person always wants something from the decision maker. Everyone is a special pleader, trying in good faith to get the decision he wants. This is true whether the decision maker is the chief executive of the organization or the junior most executive. The only way to break out of the prison of special pleading and preconceived notions is to make sure of argued, documented, well thought-through disagreements.

The second reason is that a disagreement alone can provide alternatives to a decision. And a decision without an alternative is a desperate speculation, no matter how carefully thought through it might be. There is always a high probability that the decision can prove wrong either because it was wrong to begin with or because a change in circumstances has made it wrong. If the executive has thought through alternatives during the decision making process, he has something to fall back on, something that has already been thought through, that has been studied, and that is understood. Without such an alternative available, he is likely to struggle miserably when reality proves a decision to be inoperative.

The third reason why the disagreement is needed is to stimulate the imagination. One does not, to be sure, need imagination to find the right solution to a problem. But then this is of value only in mathematics. In all matters of true uncertainty which normally as the executive deals with, he needs ‘creative’ solutions which produce a new situation. And this means that he needs imagination, a new and different way of perceiving and understanding. Imagination of the first order is normally not in abundant supply, but neither it as scarce as it is generally believed. Imagination needs to be challenged and stimulated, however, or else it remains buried and unused. Disagreement, especially if forced to be reasoned, thought through, documented, is the most effective stimulus known.

Few people have the ability to imagine a great many impossible things. It can be seen that people sees in a flash that while 5 x 8 equals 8 x 5, ‘a blind Venetian’ is not the same thing as ‘a Venetian blind’. This is imaginative sight of a high order. Far too many decisions are made on the assumption that a ‘blind Venetian’ must indeed be the same as a ‘Venetian blind’.

It is known that water is conducted in pipes and it flows only when someone turns on a tap. Imagination is like water in the pipes. Unless the tap is turned on, the imagination does not flow. The tap is the disciplined disagreement.

The effective decision maker, hence, develops disagreement. This protects him against being taken in by the plausible but false or incomplete. It gives him the alternatives so that he can choose and make a decision, but also so that he is not lost in the haze when his decision proves to be deficient or wrong in execution. And it forces the imagination of his own and that of his associates. Disagreement converts the plausible into the right and the right into the good decision.

The effective decision maker does not start out with the assumption that one proposed course of action is right and that all others are wrong. Nor he starts with the assumption that he is right and others are wrong. He starts only with the commitment to find out why people disagree.

Effective executive knows, naturally, that there are fools around and that there are also trouble makers. But he does not assume that the person who disagrees with what he himself sees as clear and as obvious is, hence, either a fool or a knave. He knows that unless proven otherwise, the dissenter has to be assumed to be reasonably intelligent and reasonably fair-minded. Hence, it has to be assumed that he has reached his so obviously wrong conclusion because he sees a different reality and is concerned with a different problem. The effective executive, hence, always asks what this person has to see if his position was, after all, tenable, rational, and intelligent. The effective executive is concerned first with understanding. Only then he even thinks about who is right and who is wrong.

For making decision, the other side’s views are necessary but the same are not being obtained by most of the decision makers. Most of them normally start with the certainty that what they see is the only way to see.

In an organization, both the management and the trade unions normally work with great efforts to prove each other wrong. If either side had tried to understand what the other one sees and why then both will be stronger, and management-labour relations will become much healthier and much smoother.

The executive who wants to make the right decision forces himself to see opposition as his means to think through the alternatives. He does not allow his emotions to take upper hand even if he is sure that the other side is completely wrong and has no case at all. In fact, he uses conflict of opinion as his tool to make sure that all major aspects of an important matter are looked into carefully.

There is one final question the effective decision maker asks whether a decision is really necessary. One alternative of doing nothing is always there. Every decision is like surgery. It is an intervention into a system and hence carries with it the risk of shock. One does not make unnecessary decisions any more than a good surgeon does unnecessary surgery. Individual decision makers, like individual surgeons, may differ in their styles. Some may be more radical or may be more conservative than others. But by and large, all of them agree with the rules. One has to make a decision when a condition is likely to degenerate if nothing is done. This also applies with respect to the opportunity. If the opportunity is important and is likely to vanish unless the person acts then he acts and he makes a radical change.

Also, there are conditions when a person can, without being very optimistic, expect that the conditions take care of themselves even if nothing is done. If he gets the answer that ‘the things will care of themselves to the query ‘what happens if nothing is done’, then he has not to interfere. Neither he is to interfere if the condition, while annoying, is of no importance and unlikely to make any difference anyhow.

It is a rare executive who understands what the following example brings out. The controller of finance in an organization who in a desperate financial crisis preaches cost reduction is rarely capable of leaving alone minor flaws, elimination of which achieves nothing. He is aware, for example, that the significant costs which are out of control are in the marketing department and in physical distribution, and he works hard and intensely for getting them under control. But then he also discredits himself and the whole effort by making a big fuss about the ‘unnecessary’ employment of two or three old employees in an otherwise efficient and well-run plant. He also dismisses as immoral the argument that eliminating these few old employees does not make any difference by arguing that other persons are making sacrifices and why the plant people are to get away with inefficiency. When it is all over, the people in the organization forgets fast that he saved the organization and they will only remember his vendetta against the two or three old people in the plant and rightly so. Many decision makers are still need to learn what the old Roman law ‘The magistrate does not consider trifles’ has said almost 2000 years ago.

The great majority of decisions lie between these extremes. The problem is not going to take care of itself, but it is unlikely to turn into deteriorating menace either. The opportunity is only for improvement rather than for real change and innovation, but it is still quite considerable. If people do not act, in other words, they will in all probability survive, but if they do act, they may be better off. In this situation, the effective decision maker compares effort and risk of action to risk of inaction. There is no formula for the right decision here. But the guidelines are so clear that decision in the concrete case is rarely difficult. The guidelines are (i) act if on balance the benefits greatly outweigh cost and risk, and (ii) act or do not act, but do not evade or compromise.

The effective decision maker either acts or he does not act. He does not take half-action. Many of the decisions which are ready to be made after exploring all the alternatives and weighing of risks and gains, are lost since it becomes suddenly quite clear that the decision is not going to be pleasant, is not going to be popular, is not going to be easy. It becomes clear that a decision needs courage as much as it requires verdict. There is no inherent reason why decisions are to be distasteful, but most effective ones are sometimes. The effective executive does not make another study at this point.

When confronted with the demand for another study, the effective executive checks whether there is any reason to believe that additional study is going to produce anything new and whether there is any reason to believe that the new study is going to be relevant. And if this checking reveals that nothing is going to be achieved, then the effective executive does not permit another study. He does not waste the time of good people to cover up his own indecision. But at the same time he does not rush into a decision unless he is sure he understands it.

Like any reasonably experienced person, effective executive has learned to pay attention to the inner voice ‘to take care’. Just because something is difficult, disagreeable, or frightening is no reason for not doing it if it is right. But he holds back only for a moment if he finds himself uneasy, perturbed, bothered without quite knowing why. He always stops when things seem out of focus since it is the way of the best decision makers. Nine times out of ten the uneasiness turns out to be over some silly detail. But the tenth time he suddenly realizes that he has overlooked the most important fact in the problem, has made an elementary blunder, or has misjudged altogether. But the effective decision maker does not wait long, usually a few days, at the most a few weeks. If the inner voice has not spoken by then, he acts with speed and energy whether he likes to or not.

Executives are not paid for doing things they like to do. They are paid for getting the right things done, most of all in their specific task, the making of effective decisions.